1. Economic effects of the Russia-Ukraine war on Egypt
Though the risk to Egypt’s economy is severe, the country is in a much stronger financial position. In the first half of the fiscal year 2021-22, Egypt’s economy grew by 9% and growth is projected to exceed 6% for the entire fiscal year ending June 30, 2022. Egypt is the world’s 10 top sunflower oil importer. The country gets more than 70 percent of its SFO imports from Ukraine and Russia. The war may directly threaten supplies of sunflower oil. Citizens need to rationalize the consumption to spare the country which provides tens of millions of Egyptians with subsidized cooking oil.
On 21 March 2022, the Egyptian pound plunged nearly 17.8 percent in value against the US dollar, following a rise in inflation and amid mounting economic hardships. The pound was trading at 18.45 to the dollar by closing time at banks, from 15.66 the previous day. The ministry of finance declared it will maintain the customs exchange rate at 16 pounds to the dollar, as the local currency continued its freefall. The latest depreciation comes as global food supply chains have been dealt a major blow by Russia’s conquest of Ukraine. As the world’s largest importer of wheat, Egypt relies on both countries for 85% of its supplies of the staple, as well as 73% of its sunflower oil. The devaluation came to safeguard foreign exchange liquidity and the trust of foreign investors.
Tourism, Egypt’s main source of foreign currency is vulnerable to fallout from the war, before the coronavirus pandemic, the country’s tourism revenues accounted for up to 15% of the gross domestic product. Russia and Ukraine are the main sources of tourists for Egypt. This number could decline if the conflict persists, dealing a serious blow to the sector which just started to recover from the coronavirus pandemic. Egypt has been witnessing a gradual recovery in the tourism sector since last summer, with the country hoping to achieve the numbers of the pre-pandemic number of tourists, which stood at about 13 million in 2019. In a preventive step, the Egyptian government is doubling efforts to lure alternative tourism markets to soften the expected influence of the ongoing Russian invasion.
2. Food supply and demand amid the Russia-Ukraine war
Uncertainty over sunflower oil supplies due to the conflict between Russia and Ukraine is spurring demand for palm oil and soybean oil, fueling the vegetable oil market. The Black Sea accounts for 60% of world sunflower oil output and 76% of exports, so the uncertainty over how the crisis in the region may impact crop production and movement has prompted buyers to seek alternative vegetable oils. Surging palm oil and soybean oil prices could hit new record highs in the short term, and squeeze price-sensitive Asian and African consumers already lurching from soaring fuel and food costs.
The Russia-Ukraine war has begun to disrupt Egypt’s supply of sunflower oil. The government imports 95% of its vegetable oil and offers Egyptian consumers a subsidized cooking oil blend of sunflower oil and soybean oil. The USDA forecasts Egypt’s MY 2021/22 sunflower oil consumption to reach 355,000 tonnes, with 98.6% being supplied by imports. On Feb. 28, Ukrainian sunflower oil was assessed at $1,950.50 per tonne, up to $470.50 from the prewar price of $1,480 per tonne. That price was for those who were able to acquire a consignment for physical delivery.
With Ukraine and Russia being the dominant exporters, Egypt cannot easily find replacement suppliers. It also cannot easily increase the volume of soybean oil either, as producers Argentina, Brazil, and Paraguay will encounter a 9.5-million-tonne soybean production deficit due to insufficient rainfall in South America. The global market for vegetable oils had already witnessed a huge wave of rising prices among vegetable oils during 2021. In June 2021, Egypt lifted the price of subsidized unblended oils by 23.5% while the one-liter bottle of blended soybean and sunflower oil was replaced by an 800-ml bottle at the same price, equivalent to a 20% cut. While the subsidy reduction helped reduce the year 2021 wave of global food oil inflation, the Russia-Ukraine war has turned that wave into a price spike tsunami as countries struggled to find alternatives to sunflower oil.
In January 2022, Indonesia, the largest palm oil producer imposed strong limits on exports to combat its local surging domestic cooking oil prices due to the high increases in 2021. Malaysia, the next largest palm oil producer experienced lower palm oil production and may not be able to cope with heightened demand from nations seeking to find a substitute for sunflower oil, leaving Egypt facing a vegetable oil crisis. In 2021, trade sources indicated that the combined total imports of RBD palm oil, RBD palm olein, and RBD palm stearin were recorded at 1.17 million tonnes, accounting for 62% of the total oils & fats imports.
3. The Repercussion on Oils and Fats; Threats and Opportunities
With the outbreak of the Russia-Ukraine war, Egypt’s food security crisis now poses a threat to its nation. The weak state of Egypt’s food security stems from the agricultural sector’s inability to produce sufficient cereal grains, especially wheat, and oilseeds to meet even half of the country’s domestic demand. Egypt relies on large volumes of heavily subsidized imports to ensure sufficient as well as affordable supplies of bread and vegetable oil for its 105 million citizens. Securing those supplies has led Egypt to be among the world’s top 10 importers of sunflower oil.
With better economic resources at its disposal, the government’s General Authority for Supply Commodities (GASC) has engaged in proactive efforts to mitigate Egypt’s food import matter. GASC has contracted for a quantity of 101,000 tonnes of crude oil, including 80,000 tonnes of imported soybean oil and 21,000 tonnes of local soybean oil to bolster the country’s strategic stock of vegetable oils.
On 12 March, Egypt’s Minister of Trade and Industry issued a decision banning the exportation of edible oils, cracked green wheat, and corn for three months. In coordination with the minister of supply, the decisions came as part of the country’s efforts to meet the local market needs, especially staple commodities, on the advent of the holy month of Ramadan and to control the repercussions of inflation and price increases impacted by the Russian-Ukrainian war. The ban will severely impact exports of foodstuff especially edible oils to neighboring countries which depend on Egypt to fulfill their local demand due to proximity. Sudan which relies on Egypt due to current political instability and blockade of ports will undergo shortages due to the decision, Egypt is the second biggest exporter of palm oil to Sudan after Indonesia. Egypt exports about 16% of Sudan’s imports of palm oil. Meanwhile, the Egyptian Cabinet announced the availability of ration card commodities without shortages, with no change in prices. The commodities are pumped regularly daily at all outlets and all ration card outlets.
4. Malaysian Palm Oil Performance and Prospects
Exports of Malaysian palm oil and its derivatives to Egypt witnessed a substantial increase in 2021. Egypt was the top importer for palm oil products, accounting for 45% of the total export to the North Africa region, exports to Egypt increased by 41% to record 219,719 MT compared to 155,747 MT in 2020. This is remarkable progress since all imports were sourced from Indonesia for a long time. RBD palm olein is the highest product exported to Egypt, it was recorded at 168,552 tonnes, this represents a significant increase of 50,413 tonnes (43%) compared to 118,138 tonnes in 2020. RBD palm stearin witnessed a huge increase of more than 3 folds. However, RBD palm oil declined by 23% to record 15,433 tonnes compared to 20,021 tonnes in 2020.
Malaysia’s exports to Egypt are expected to increase on strong demand for palm oil for various food applications and amid increased demand ahead of the Islamic holy month of Ramadan. In Jan-Feb 2022, MPO exports to Egypt were recorded at 68,039 tonnes compared to 10,716 tonnes same period the previous year. This signifies a massive increase of more than eight-fold, this trend may continue to persist until the end of 2022.
|Malaysian palm oil products exported to Egypt
|PALM KERNEL OIL
While Ukraine and Russia war represents a severe and immediate threat, Egypt can ease the short-term price supply shocks to vegetable oil through assertive cooperation with Malaysia for the supply of palm oil. Palm oil and its derivatives are the leading imported vegetable oils in Egypt, representing 62% of the total oils & fats imported into Egypt. Establishing joint venture investment partnerships with Egypt could strengthen the oils and fats industry and food processing that is highly dependent on palm oil and its products. In Egypt, palm oil’s primary consumers are the food manufacturing and food services sectors. These two sectors are expanding as demand for high-value processed foods is rising due to increasing urbanization, busy lifestyles, the growing popularity of large food retail formats, and the presence of large food companies. The expansion in these two sectors will drive the consumption of palm oil.
Prepared by Lamyaa El Enany
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